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Announcement | Transcript Transcript

Troop Withdrawal: Looking Beyond Iraq
September 21, 2007
Ivan Eland, Leon T. Hadar, David R. Henderson

Contents

1) Introductory remarks by Ivan Eland, Senior Fellow, The Independent Institute; Author: The Empire Has No Clothes
2) Leon T. Hadar, Research Fellow, The Independent Institute; Author: A Diplomatic Road to Damascus
3) David R. Henderson, Research Fellow, The Independent Institute, The Hoover Institute; Author: Do We Need to Go to War for Oil?
4) Presentation by Ivan Eland
5) Questions and Answers

Ivan Eland

Today’s program is about the implications of troop withdrawal—from Iraq and beyond.  Now, of course, we are going to have some sort of troop withdrawal from Iraq.  It’s pretty meager at this point, but there is a planned withdrawal.  So we’re taking this opportunity to talk about a larger troop withdrawal and some of the implications of that.  Of course, there’s been all sorts of dire predictions that if the United States leaves Iraq, chaos, genocide, safe haven for al-Qaeda, regional war, etc.  We’ll try to—and also, very importantly, would our oil supplies be safe, etc.

So we’re going to go into some of those issues today.  Really, in short, will a withdrawal from Iraq be catastrophic for US interests?  We’ve got all these issues that I just mentioned.  How could we minimize the risks of all that happening?  Is diplomacy with Syria, Iran, and other nations the answer?  Or could we get some sort of a decentralized settlement so that we’d cut down on the violence, or even eliminate it after we leave? 

Today we’ve got a distinguished panel.  I’ll exclude myself from that.  I can’t refer to myself as distinguished.  But these gentlemen here are very distinguished.  And so I’ll just introduce them right from the start and then we can just get started.  I’m not going to say everything that they’ve done in their lives, because that would take up too long, and we want to get to the policy.  But they are very qualified to talk on this topic. 

Our first speaker will be Leon Hadar.  He’s a research fellow at the Independent Institute, and he’s the author of a new independent policy report A Diplomatic Road to Damascus.  And I believe in your packet, you’ve got that right here.  And he’s also the Washington correspondent for the Singapore Business Times.  He’s a former UN bureau chief for the Jerusalem Post and a former member of the Israeli defense forces.  And he’s also author of the book, probably most importantly, Sandstorm:  Policy, Failure, and the Middle East

Our second speaker is David Henderson.  He’s also a research fellow at the Independent Institute and also a research fellow at the Hoover Institution.  He’s an associate professor at the Naval Postgraduate School, and an adjunct scholar at the American Enterprise Institute.  He has written a paper, which we’re also releasing today, Do We Need to Go to War for Oil?, and he is an economist, and I think he will go into that topic more specifically during his presentation.

And I’m the last speaker and I’m a senior fellow here at the Independent Institute and Director of the Center on Peace and Liberty.  And so with that, Leon, why don’t you take it away?

Leon T. Hadar

Hi.  Thank you very much.  Let me just start by thanking Ivan Eland and the Independent Institute for hosting this event.  And I’m also very honored to share the podium with Professor David Henderson. 

I think that I can speak for all the three of us by pointing out that our shared opposition to the military adventure in Iraq, and our shared take on U.S. policy in the Middle East, flows directly from our shared commitment to the principles of classical liberalism, and our shared skepticism about the moral right and the administrative capability of government to direct people’s lives at home and abroad. 

Now the problem with the Iraq war was not that the “producer of the movie” screwed up.  The arguments that are common today take the form: if only we had more troops; if only we had a pre-invasion plan; if we had not dismantled Saddam Hussein’s military.  The real problem is that the “script” here really bombed big time.  In fact, what we tried to produce it is a remake of an old movie, which was the British imperial project in the Middle East.  It’s with different actors, but it’s basically the same script.  We know how that old movie ended, and I think the new one will end in the same way.  The cost of the British Empire in the Middle East ended up being higher than the expected benefits.

Now the neoconservative even added a Wilsonian soundtrack, if you will, to the old script.  America was going to achieve a strategic hegemony in the Middle East by making the Middle East safe for democracy.  What America ended up doing in Iraq and the Middle East is not making it safe for democracy, but safe for the revival of tribal, religious, and ethnic identities, for nationalism, which is basically a much more powerful force than democracy.

And it’s not surprising that this force is now challenging the current hegemony, which is the United States, and the insurgency is taking clearly an anti-American form.

Now the question is what do you do with a movie that bombed?  Say, Snakes on the Plane.  You try to cut your losses.  You pray that the viewers in Albania and Tajikistan will want to watch that movie, if you will.  This is the “coalition of the willing,” in this case.  And you release it quickly on DVD and then you search for a new script.

So what do we do with a foreign policy that bombed?  First we start cutting our losses.  We disengage from Iraq.  We cut our military, diplomatic, and economic costs.  And then we have to come up with a new script.  We need to reassess U.S. policy in the Middle East.  We need to go back to the basics.  We have to ask ourselves: what are we actually doing in the Middle East, and why are we in the Middle East?  And we should come up with a new Middle East paradigm. 

Now I don’t want to talk too much about my paper on Syria, which I think you have.  But regard that as a component of the first stage in this process, which is the cost-cutting strategy aimed at disengaging from Iraq.  (And I know that Ivan Eland is going to talk about it.)

First of all, in terms of principles, we need to refrain from applying a dogmatic ideological framework to consider U.S. interests in the Middle East, in which America is supposedly leading the struggle against Islamo-fascism, the Axis of Evil, the evildoers and so on.  We should recognize that U.S. relationships with movements and governments in the Middle East should be based first and foremost on concrete U.S. national interests

In that context, if that we apply that principle, we have to conclude that maintaining diplomatic dialogue with Syria—which is a living Arab state in the Levant  bordering Lebanon, Israel, Iraq, and Turkey—could help Washington advance its interests, again, in this first stage of cutting our losses in Iraq.

In Iraq, Syria could help the United States establish stability in a way that would permit the withdrawal of U.S. troops from the region.  Syria could work together with Iraq and the United States to prevent radical fighters from infiltrating Iraq.  In Lebanon, Lebanon’s ability to maintain its independence depends very much on Syrian cooperation.  We need Syrian cooperation in that context.

Peace with Israel—another important issue. I’m going to have a peace in The National Interest magazine about this issue.  This is the first time in which the United States, as far as I recall, put pressure on Israel not to make peace with another Arab state.  Indeed, if you follow the news, the United States has been leading an effort, actually, to support those members of the political establishment in Israel who are interested in engaging Syria and responding to the peace overtures from Assad. 

I believe that eventually ending the political and economic isolation of Syria could help create a convention for the resumptions of talks between Syria and Israel.  Syria is interested in that.  I think Israel is interested in that.  I think the only remaining obstacle to that process is actually the Bush administration.

The Kurdish issue, Syria can also play an important role in managing together with two other major powers in the region—Turkey and Iran—in terms of dealing with the issue of Kurdish nationalism and putting pressure on the Kurds in northern Iran, not to take steps towards political independence.  There are common interests still between those three states. 

And finally, the regional balance of power.  Everyone is talking about the threat of the rise of Iran.  I actually think that the United States should engage with Iran.  But even if we take it as for granted that Iran is now an anti–status quo party that threatens U.S. national interests, we have an interest in helping and encouraging Syria to distance itself from Iran in order to ensure that the balance of power in the region does not shift farther into Iran’s favor.

I think that the axisbetween Iran and Syria is based very much on short-term interest.  It’s not an ideological kind of an alliance.  And I think if the U,S, would take the right steps, we can eventually co-opt the Syrians, and weaken, in some respect, the position of Iran—even if we want to engage with Iran at the end. 

And finally, Syria after 9/11 took steps to help the United States in dealing with the fight against terrorism, and I don’t see any reason why it shouldn’t continue doing that.

Now I want to return to what I think is more important to the second stage of the process which, as I said earlier, my main argument that this process of disengagement, including diplomatic détente with Syria, and possibly with Iran, as part of an effort to disengage with Iraq, should serve an opportunity to reexamine the entire assumptions of U.S. policy in the Middle East.

Thirteen years ago, after the first Gulf war, I published a book called Quagmire: America in the Middle East, in which I proposed that the United States should reassess its Cold War Middle East paradigm now that the Cold War as ended.  And I reiterated the same point in my new book, which is called Sandstone: Policy Failure in the Middle East, which was published after the second Gulf war, and which is available at Amazon.com. 

Now when I say the Middle East paradigm, what do I mean by the Middle East paradigm?  I basically talk about the beliefs and assumptions that have guided those making and analyzing U.S. policy in the Middle East for most of the second part of the 20th century.

Now, the Middle East paradigm had three components. Geo-strategy, call it the Soviet Union.  As part of an effort to contain the Soviet Union and its allies in the region, the United States basically replaced Great Britain and France as the main power in the region protecting the interests of the Western Alliance there against the Soviet Union, which was clearly a global threat like Nazi Germany.  And it had a certain ideological and strategic disposition that threatened Western interests.  Hence the willingness on the part of the United States to pay the high cost of maintaining that alliance.

Geo-economics, an issue that I know professor Henderson will talk about.  It’s oil.  Since the end of World War II, the United States basically assumed the responsibility of protecting the free access of the Western economies, including North America, Western Europe, Northeast Asia, Japan and South Korea, to the energy resources in the Persian Gulf.  Doing that through a very costly partnership with the oil-producing states in that region there led by Saudi Arabia.  Now the Americans were willing to provide the allies with free ride in the form of protection to the energy resources because of the Cold War.

Third, idealism of Israel.  Since Israel was established in the aftermath of the Holocaust, the United States has underscored its historic and moral commitment to the survival of the democratic Jewish state by helping Israel to maintain its margin of security as it coped with threats from the Arab neighbor. 

One important outcome, if you talk about this paradigm, is that there has always been a need, which was, again, very costly, by the United States to juggle its interest in commitments to Israel and to the Arab oil-producing state, and as part of that process, to try to reach an Arab-Israeli conflict.  The main emphasis on reaching a peace between Israel and its Arab neighbors, I think, as far as the United States, lies in this need to juggle those interests in the region.

Now the Middle East paradigm became very much part of the genetic makeup, if you will, of policymakers and lawmakers during the Cold War.  Hence the need to always do something when something is happening in the Middle East.  The 1973 war was probably the most dramatic example of that, because there was a threat to Israel, there was an oil embargo, there was Soviet intervention. 

Now my main conclusion is that the changing realities in the world, and in the Middle East —the collapse of the Soviet Union, the changing relationship between Europe and the United States, the transformation of the Arab-Israeli conflict into a mostly local dispute—have made that Cold War-Middle East paradigm obsolete.

Geo-strategy.  The demise of the Soviet threat to Western interests means that the geo-strategic premise of that paradigm has vanished.  In fact, the continuing U.S. intervention after the end of the Cold War, beginning with the first Gulf War, helps ignite anti-Americanism in the region, and takes the form of anti-American terrorism. 

Geo-economics.  Again I don’t want too much to deal with an issue that will be discussed here, but my main argument, even if you don’t apply the free-market analysis, which I’m sure professor Henderson will do in his speech, is that you can make an argument that since the economies of the members of the EU, and Japan, and South Korea are the ones that are dependent on access to oil from the Middle East, why shouldn’t the Europeans and the Japanese start protecting their economic interests in the reason? The U.S. receives probably less than 20 percent of its energy imports from the Middle East—we are actually more dependent on Latin American oil, if you will.

Since the EU and Japan are actually economic competitors of the United States, we are basically providing them with free protection.  They don’t have to raise their defense budget.  They don’t have to send troops to the Middle East.  They can have those long vacations of six weeks or whatever. 

And I would argue, let’s change the equation here.  France is now talking about Iran, and I think they are making a good point, because if you look at the map, if Iran has nuclear weapons, and if it is a threat, it is going to threaten France first and not the United States.  They should deal with it.

Idealism.  To make a long story short, Israel today is a very strong regional military and economic power with nuclear capability that is able to protect itself against potential threats like Iran.  Actually the main threat to Israel’s survival today as democratic Jewish state is not the lack of U.S. assistance, but continuing Israel control of the West Bank and a lack of a solution to the Israeli-Palestinian conflict. 

And, in fact, now that the Palestinian-Israeli conflict has been transformed into mostly a local dispute between Jews and Arabs in the Holy Land, there is less pressure, I think, on Washington to be drawn, as always, into this hyper-diplomatic engagement in terms of resolving the Arab-Israeli conflict.

Now most of my book is devoted to discussing why the paradigm is so widespread.  Social scientists talk about level of analysis.  We can talk about institutional pressure, bureaucratic inertia, Congressional lobbying, and so on and so forth.  My perspective: it’s the international system, stupid.  That is to say, the collapse of the Soviet Union, and the transformation of the international system from a bipolar system into a mostly unipolar system enabled and encouraged the United States to enter into the vacuum of the Middle East.  Boys will be boys, and great powers will be great powers.  When they have an opportunity to do something, they do it.  There are no checks and balances in the international system.

Just imagine: if the Soviet Union was around the second Gulf War and the first Gulf War wouldn’t have taken place. 

I think that at this stage, the United States wants to control the oil resources in the region  not because we need access.  Even if we don’t care about Israel and the others, the fact of the matter is that the U.S., at least the establishment, is interested in maintaining control over the Middle East to use it as a leverage with potential global competitors that could challenge U.S. hegemony, including the European Union and eventually China.

Imagine a conflict between the United States and China over Taiwan, for example.  If the U.S. controls the oil resources in the Middle East, the message to China is, if you don’t make concessions, if you don’t withdraw, you’ll stop getting oil from the region.   And your economic growth will be threatened in a very serious way.

Now the members of the foreign-policy establishment in both parties—and I think it’s reflected very much by the conclusion of the Iraq Study Group—want to disengage with Iraq and to do some cost cutting.  And in that respect, I do support most of the conclusions of the Iraq Study Group.  And the people there will probably support my views on the issue as far as disengagement from Iraq, dialogue with Syria, and perhaps with Iran.

But I think most of these people want to return to what I call the cost-free Pax Americana of the 1990s.  During the 1990s, the first Bush administration and the Clinton administration were able to maintain U.S. hegemony in the region by a very low cost policy of containing Iraq and Iran, and creating the impression that we are doing something to deal with the Arab-Israeli conflict.  At the end of the day, after the second intifada and 9/11, it was made clear to the United States that if you want to be a hegemon, you have to pay for it.

And in some respect, what happened afterwards is where we are now today.  There is no cost-free Pax Americana.  However, I think many people in the foreign policy establishment, ranging from Brzezinski to people on the realist side of the Republican Party, believe that it’s possible that if we withdraw from Iraq, we’ll find some way to engage Syria and Iran.  We’ll try to make an effort to resolve the Israeli-Palestinian conflict once again.

And again, it’s kind of strange that the same people who belong to the reality-based community when it comes to Iraq, believe that it’s very easy to resolve and deal with the Israeli-Palestinian conflict.  And we’ll be back in the good old days of the 1990s.

I don’t think that is possible.  I propose replacing the notion of American monopoly with the notion of American oligopoly.  Basically a consortium of great power, like the Congress of Vienna system, of the United States, the EU, Russia, and perhaps eventually even China and India, working together to deal with global threats including terrorism, rogue states, weapon of mass destruction. 

We need to adjust to the reality of a multi-polar and not a unipolar world, make the best out of it, and apply it first and foremost in the Middle East.  So I’ll be happy to respond to other questions, either on the short-term issue of Syria and negotiation with Iran, or in terms of the big picture of U.S. policy in the Middle East.

Audience Members

(applause)

Ivan Eland

Thank you, Leon.  I forgot one thing. If I’m going to be referred to as distinguished by David, I didn’t distinguish myself as a moderator because I forgot to mention his book The Joy of Freedom: An Economist’s Odyssey.  He’s going to talk about warfare and oil.

David R. Henderson

Thank you, my distinguished colleague Ivan Eland.  And Leon, thank you for your talk.  The first half was a really nice quick walk through Middle East politics, and it reminded me why I keep balking when I try to become expert at that.  It’s got so many players and so many parts to the story.  I think I’m going to stick with America, basically.  My talk is titled “Do We Need to Go to War for Oil?”  And the answer is no.  Any questions?

Audience Members

(laughter)

David R. Henderson

But I want to give a little history here.  A lot of you—well maybe 15 of you—are too young to remember this.  But in the 1970s, after OPEC cut the world’s supply of oil and raised the world price from $3 a barrel to $11 a barrel—and that price maintained through most of the ’70s—there was a huge amount of talk in the United States, serious talk by serious people, about going to war for oil, about going over there.  And they saw war as essentially an antitrust action.  Just a very violent one.

And there was a famous foreign policy analyst who used a pseudonym in an article in Harper’s, the pseudonym of Miles Ignotus.  Most people think it was Edward Luttwak.  And here’s what he said.  I want to obviously not summarize the whole article.  But there’s one important point I want to quote completely:

“The goal is not just to seize some oil (say, in accessible Nigeria or Venezuela), but to break OPEC.  Thus force must be used selectively to occupy large and concentrated oil reserves, which can be produced rapidly in order to end the artificial scarcity of oil and thus cut the price.  Faced with armed consumers occupying vast oil fields”—somehow I’m picturing a guy going into a 7-11 with a stocking over his head—“whose full output can eventually bring down the price to fifty cents a barrel, most of the producers would see virtue in agreeing to a price four or five time as high, yet still six times lower than present prices.  This being the goal, there is one feasible target: Saudi Arabia.”

And this was a serious guy.  Henry Kissinger made similar noises.  Secretary of Defense James Schlesinger said similar things.  And Jimmy Carter, shortly after coming into office, put together the Rapid Deployment Force, RDF, with the explicit idea of training it, equipping it and so on to do desert maneuvers, to be over in that part of the world, the fear being some kind of supply cut in oil, or some kind of Soviet takeover of those oil fields. 

RDF later became CENTCOM, which we still have.  To give you an idea of how important that was then, in 1985  Earl Ravenal estimated their budget of $47 billion in those year’s dollars, which would be $89 billion today, which is a large number.  By the way, if you want to estimate the cost of a particular thing the Pentagon does, it’s very hard.  They put the numbers together on purpose so that you can’t back out what things are really costing.  It’s a standard bureaucratic trick.  Every agency does it.  They’re particularly good at it.

And of course we have 1990, which to some extent was about oil.  James Baker, who was Secretary of State, Henry Kissinger, the always ever-present Henry Kissinger, and President Bush the first said oil is a big part of this.  We’re worried about Saddam Hussein having a huge control over oil.

Well, one view that every American pretty much my age and higher—and Americans 10 years younger than me, and higher—have had this idea that if there’s some kind of disruption in the Middle East, the effect will be lineups for gasoline in the United States.  That’s what we had in the early 1970s, that’s what we had in the late ‘70s.  And that’s a fear a lot of Americans have. 

Well, let me put that fear to rest with some basic economics.  No country in the world, no matter what it does to the price, to the supply of oil, can cause us to line up for gasoline.  Only governments in the United States can do that.  And they were the ones who did it.

Specifically, it was Nixon’s price controls in the early ‘70’s that prevented the price of gasoline from rising to world market prices to reflect the increase in the world price of oil.  And that’s what caused us to line up.  And there’s not really controversy among economists about that.

So whatever happens, we know we don’t have to line up, if our government avoids price controls.  And countries that avoided price controls during that time didn’t have lineups.  In Switzerland, which has essentially no production, they had zero lineups.  It’s even rumored that they kept washing your windshield.

Now let me just also say one other thing.  People also look back at the bleak ‘70’s, from about ’73, when the price increase occurred worldwide, to a large part of the ‘70’s, where we had either a serious recession—’73 to ’75—or kind of a flabby recovery the first couple of years after that.  And they worry whether a price increase in oil can really roil our economies.  It can really mess them up, can reduce growth substantially. 

But again we’re kind of back to the price control story.  That did happen in the ‘70s.  But economists more recently, such as a guy named Dhawan at Georgia State and Jeske at the Federal Reserve in Atlanta, pointed out that a major part of the disruption caused by the price increase of oil in the ‘70’s wasn’t due to the price increase, it was due to the price controls.

Price controls do a bunch of bad things.  They cause people to line up for gasoline.  They prevent the gasoline and oil generally from going to the people who value it most—value as measured by their willingness to pay—and so we don’t get the most efficient use of the oil, or the most efficient use of the gasoline.  And they point out that’s a big part of why the damage occurred in the ‘70s.

And in fact we’ve got evidence from that since then.  From 2002 to 2006, inflation-adjusted, the average price of oil increased $8.60 a year for those four years.  If you run out the numbers, given that we’re a net oil importer, that can take off three-tenths of a percentage point of growth per year.  So if we’re going along at say 3 percent, we’ll fall to 2.7 percent.  In fact our growth over those years averaged 3.2, which suggests we would have gone along at 3.5 and it was 3.2.  In other words, these are not huge effects on the U.S. economy. 

I’m going to get back to supply-side cutbacks later, but let me go to another issue that worries people.  And I call this issue the impotence of selective embargoes.  One of the things that has worried people is that some country in the world that hates the United States—or more likely hates the United States government and wants to take it out on Americans—and will try to withhold oil from the market to hurt United States.  (And presumably it’s some kind of country that’s exporting to the United States.)

So in my paper, which you all have a copy of, I say, well, let’s imagine that it’s Venezuela.  If you look at the list of people exporting to us, on that list, the one that would probably have a head of a government that hates us much—I don’t think Venezuelans do. but head of a government that hates us most—I think Venezuela would be a candidate.  In 2005, it sold us 1.5 million barrels a day.  Which, to put it in perspective, was about 7 percent of our overall usage. 

Well, now, imagine Hugo Chavez says, hey I want to hurt the Americans so I’m going to cut my exports to the Americans by half.  So now I’m going to only export 750,000 barrels a day, and not export those other 750,000.  By the way, there’s not much evidence for this, because you know what Hugo Chavez actually did with Americans.  Right?  He subsidized our oil.  But again let’s go with this scenario. 

So let’s say he doesn’t want to cut his output.  Well, then he’s got 750,000 barrels a day that he needs to sell somewhere else.  So he goes around and finds other people who want to buy it.  Now those people want to buy 750,000 barrels less than they were buying.  That means other suppliers have 750,000 barrels a day freed up to sell to whom?  America.  We want those 750,000 barrels. 

So, in other words, if the country that wants to impose the harm with a selective embargo isn’t willing to cut its own output, there’s just a reshuffling of oil supplies.  It’s like if you’ve ever played when you were at a birthday party when you were about 12, the game of musical chairs.  Except this is musical chairs in which the number of chairs equals the number of players.  It’s not a very exciting game.  It’s a very boring game.  But in international trade, boring is good. 

Now, I’ve simplified a little.  Let me focus on the way that matters.  It’s probably not that Chavez goes and sells that 750,000 to just one country, probably a few countries.  And so it’s just a bunch of consumers all over the world. 

The other way I’ll simplify it though that matters a little is on transportation costs.  Presumably there was a reason we’re buying from Venezuela.  New Orleans is close to Venezuela.  So when you reshuffle, transportation costs are a little higher, and those transportation costs are like a tax.  And they’re borne by suppliers and demanders according to elasticities of supply and demand.  That complicates it a little.  Oil is slightly more expensive.  If our transportation costs in that 750,000 barrels a day are $1 a barrel higher, that works out to $275 million per year in America, which is less than a dollar per person for the year.  So we’re not talking big costs here.

Now how could a government impose substantial costs on the United States?  Really only one way.  But cutting its own oil supply.  That’s the only way.  The only way you’re going to drive up the price to Americans is to cut world supply, because we are in a world market.  And so that can happen. 

But here’s the problem.  First, a country that does that cannot target the United States.  It’ll just cause a world price increase, so every consumer will pay, in proportion to those consumers’ consumption.  So it doesn’t target the United States.  Doesn’t have that particular effect. 

The second is it will end up hurting the country that’s doing the cutting.  So I go through some examples from Saddam Hussein in 1990.  I wrote an article in the Wall Street Journal in August 1990, just a couple of weeks after Saddam Hussein invaded, laying out why there wasn’t a good case to go to war for oil.  And in fact I overstated—I did everything I could to overstate the damage he could do to the U.S. economy.  But let me give more realistic numbers here.  That if he had held Kuwait, he would have been producing 4.3 million barrels a day, which was 7 percent of world supply at the time.  So if he cut from 4.3 to 3.3—in other words, almost a one-quarter cut—that would be a 1.7 percent cut in world supplies.  It would cause a substantial increase in the world price because demand is very inelastic.

But he now gets that higher price on one million barrels a day less, and he’s worse off.  And I go through the numbers in this article.  I don’t want to try to do a little math in the limited time I have.  But it’s a very straightforward calculation.  So even that hypothetical one million barrel a day would not have been in his interest if he were as ruthless as we think he was—namely, this greedy grabby guy who wants lots of money to do other bad things with. 

So there just isn’t a strong case that a country’s going to want to cut oil supplies to hurt us.  Now because of what’s happened this week with Alan Greenspan talking about this to you, I want to do a little aside on that, and we might want to get back to that in the Q&A.

I haven’t read Greenspan’s book yet, but I was watching Charlie Rose last night and he did cover that pretty extensively. Greenspan’s argument is that, as I understand it from what he said to Charlie Rose anyway, whatever the recent war was about, what it should have been about was oil.  He, Greenspan, really distrusted Saddam Hussein, thought he kept wanting to shut down the Gulf. 

I think Greenspan’s evidence on this is pretty slim.  I mean, I don’t know.  Maybe he’s got it in his book.  But I got to say I’m skeptical.  There was never much evidence that Saddam Hussein wanted to close the Gulf.  What he wanted to do was grab Kuwait.  He had these huge debts from the 1980-88 Iraq war.  He was trying to pay them off.  He was a thief.  And thieves don’t want to, say, steal TVs in order to watch TV.  They want to steal TVs to sell them, to fence them.  So I just don’t buy it. 

Now there are a number of other cases for war for oil—in other words, basically, what I’m saying is we’re very secure. There’s this issue people talk about, about how we’re dependent on foreign oil.  And of course in a literal sense it’s true.  It’s true, but it’s highly misleading. 

I don’t know about you, but when I think of dependence, I think of this hopeless little waif in a Charles Dickens novel, you know?  Please sir, I want some more.  And just depending on other people.  Which completely ignores what foreign trade is all about.  Foreign trade is a case of mutual dependence.

We depend on the stuff we’re buying and the people aren’t giving it to us as in a Charles Dickens novel.  They’re selling it to us.  So they depend on the money that they’re getting from selling it to us.  So dependence is, I think, a term that ought to be thrown in the dustbin of history, along with Marxism and a bunch of other things. 

Now I promised 15 minutes and so I just heard my little timer, so let me just wrap up on the last two.  There are a number of other cases that people could make for war for oil, and I’m just going to summarize them very briefly.  One is increased supply.  In other words, don’t just have war for oil to prevent the supply from falling.  Have war for oil to cause the supply to rise. 

Now how could that be?  Here’s how.  The Economist noted recently that 90 percent of the world’s oil is produced under socialism—in other words government ownership.  And we know socialism is inefficient.  They mess up.  It’s too costly.  They’re not very innovative.   Exxon Mobil, which in August 2006 was the world’s most valuable listed company, was only 14th in the world when measured by the amount of oil left in reserves.  The 13 companies above it were all government-owned. 

So you could argue, hey, let’s have private ownership over there.  And we could have a war to establish private ownership.  Can you imagine the little sign  –  War for Privatization?  The slogan isn’t exactly ringing, but more important, you’re going to create a lot of resistance wherever you try to do that.  I think it’s unlikely it’s going to work.

The second is cheap oil.  Well, cheap oil either collapses into increased supply, otherwise how do you get cheap oil?  Or it’s essentially an argument for theft. 

So let’s say the government goes over there just to grab the oil.  And again, think of those armed consumers with stockings over their heads.  Most of tell our kids, don’t steal.  And we do that not just because we don’t want them to steal as children and embarrass us, but ideally we don’t want them to become adults who steal, either.  Well, it doesn’t really change when the adults form into a government that tries to steal other people’s oil.  So it is theft.

But besides being theft, it wouldn’t even help consumers.  Here’s why.  The government steals the oil.  Then it sells it at the world price.  So we’re paying the same price we would have.  Or, another scenario, the government steals the oil, sells it at a preferential price to an oil company.  That helps the oil company.  But the oil company turns around and sells it at the world price.  Again as consumers we’re not helped.

There is another argument for making war for oil, which is that it will reduce supplies and drive up the price of oil.  Expensive oil, in other words.  It’s not hard to refute why that’s a bad idea.  We’re a net oil importer.  So now we would pay as taxpayers to make war for oil and we would pay as consumers for the higher world price.  Adam Smith argued against that in a famous passage that I quote in here.

I realize my time is up, so let me just sum up.  The idea that a government needs to use military force to maintain access to oil is false.  Because oil is sold in a world market, it is impossible for one country’s government to hurt another country with the “oil weapon.”  The oil weapon is a dud.  And if that country reduces its own supply, it will hurt all consumers, not just consumers in the country it wishes to target.  Moreover, by restricting supply, this government will forgo oil revenues and hurt itself.  And finally, no government restriction of supply in any other country can cause people in another country to line up for gasoline.  Only price controls in the home country can do that.  Thank you.

Audience Members

(applause)

Ivan Eland

Thanks. We’ve gone from the general to the more specific and now I’m going to get into the specific potential solution to the criticisms that have been made about U.S. withdrawal. 

I wrote a paper that’s in your file on why Iraqi decentralization is a good idea.  And my general policy prescription is that the U.S. should threaten to withdraw immediately to galvanize national negotiations into a conclave of all groups in Iraq.  And this idea would be to create a radical decentralization of the country. 

Now, the reason I advocate this is because I generally have a philosophy that government is best at the local level because it’s more responsive to its citizens, so it’s a philosophical thing.  But also it’s just a matter of desperation in Iraq because that’s about all the United States has left there, I think.  Because everyone seems to want to limp along.  But yet everyone realizes now, I think, that a unified democratic government is probably not going to occur.

So people who criticize the radical decentralization approach first of all need to come up with something else—at least a viable option.  And also I think they need to refute the basic idea that if you separate populations who don’t like each other, who don’t want to live together, then there’s less of a chance that there’s going to be violence among them.  It just seems like a common-sense thing. 

At least one high-level Bush administration official has said anonymously that they’re probably headed toward a partition of Iraq.  But, of course, he would not say so openly.  Publicly, people avoid using the term partition, principally because of past examples that they point to where partitioning has led to violence.  However, I’m going to go through some of those examples and we’ll see that it was not partition in those cases that led to violence.  It was other matters. 

And our policy on the ground in Iraq has changed again, and we are now implicitly going more towards partition, because we are arming and training the Sunnis, the only group that we hadn’t been previously training in Iraq.  So if we don’t get this partition by negotiation, we’re going to get it by a horrendous civil war, which the United States has made worse by training all sides in it.  That’s the trajectory that we’re now on.  

Now, as I mentioned, partition is avoided in the foreign policy establishment because they point to primarily two—but you’ll see that there’s more examples of partition.  They point to the Indo-Pakistani partition of 1947 and the partition of Palestine in 1948 as being disasters.  And they were disasters.  But they weren’t disasters because of the partition. 

In fact, in many cases, the partition, once it was done, reduced the violence.  It was the process of partition and the fact that partition lines weren’t drawn with any logical rationale that got them into the problem. 

Now, I’ll go into that in a bit more.  But I also think that we ought to realize that there have been successful partitions.  Czechoslovakia, the former Soviet Union, and Slovenia and Macedonia from Yugoslavia.  Those are just recent ones.  There have been other ones after World War I.  But I won’t go into those.  There’s a whole list of them that were successful.

The problem is not with partition as an end state.  As I say, the separating of groups usually leads to less violence if the groups are fighting.  But it’s really the process.  For example, in Palestine, South Asia, and even Ireland in the early part of the 20th Century—I’m talking about when Ireland was divided from the United Kingdom—the problem was independence and the way it was carried out, not the partition.  In fact, the real problem was that the partition was incomplete. 

There’s a principle in the academic literature that if you have a large group that is left in the partitioned state—for instance Northern Ireland was about 38 percent Catholic and 62 percent Protestant—academics referred to this as a security dilemma.  Both camps are suspicious of the other one, so they armed for their defense.  But that looks like an offensive move to the other side, and so you have this escalation. 

And we have had much violence in Northern Ireland, up until recently.  And the reason for that was this big Catholic minority that was left in the north.  When they partitioned it, the Protestants had so much power in the British Parliament that the Protestants tried to grab more land than they probably should have been given.  Most of these Catholic areas should have been given to Ireland.  So Northern Ireland would have been smaller but more peaceful. 

In dramatic opposition to this, in Ireland itself, there are 8 percent Protestants.  They’ve never had any problem with the 92 percent Catholics because they don’t create fear in the larger Catholic population.  So if you have small minorities in countries, they tend historically not to cause fear in the dominant group.  But if you leave a large group in the partitioned state, you’ve got a big problem.

Now as far as India and Pakistan, most of the violence occurred in Punjab—because the Sikhs were well-armed and they didn’t want to live in Muslim-controlled areas.  They either wanted to go to India or they wanted their own state.  And this is what caused most of the violence.  The other problem that they had was the fact that Kashmir was not partitioned.  Kashmir was two-thirds Muslim and should have been partitioned.  It would have been more easily partitioned than Punjab.  But as we know, there was a war over it, and it was eventually partitioned by a war.

Now, there are two other things that we can learn.  Again, there are many Muslims in India, but they’re dispersed and they’re in small pockets.  And there’s periodic violence, but it’s at a very low level.  So we can see that that has worked out, the Muslims living in India proper.

We can also see that the partition of East Pakistan—which is now Bangladesh—was complete.  It avoided a large minority population in the partitioned state.  And it had very little violence, and the violence dropped dramatically. 

So the lesson for Iraq is, you can’t leave a big block of one group on the other side of the line.  Small group pockets are okay.  So we must gerrymander the borders to make the new statelets as homogenous as possible, leaving no big concentration of one group on either side of the line.

Another principle is to give groups defensible borders.  One of the reasons that the partition of Palestine didn’t work is because the UN assigned the Jews Jerusalem, the coast near Tel Aviv, and a little pocket in the Sea of Galilee.  These were three unconnected areas.  So what happened?  There was a war so that these areas could be connected to each other. 

So the lesson for Iraq is, even after ethnic cleansing there are still some intermingled groups, but there are basically three areas that could be defensible—the south for Shia, the central for Sunni, and the Kurds in the north, who already have an autonomous region. 

The partition of Palestine also shows that all parties have to agree to the partition or there’s going to be a war.  Everyone knew that when the U.S. partitioned Palestine, and the U.S. agreed to it, that there would be war because the Arabs didn’t agree with the whole thing.  And now we have Israeli settlements, which are in the Palestinian areas, otherwise Arab territory, which are causing the violence.  So we see that there’s an incomplete partition there as well.

So the lesson for Iraq is, you must hold a conclave and get all parties to agree to the partition and let them draw the boundaries.  Even the Sunnis in Iraq are coming around to decentralization.  The Shia and Kurdish leaders are already there and have been there for quite some time.  If all sides don’t agree to divide the country peaceably, the civil war will escalate and the U.S. will have succeeded, as I mentioned, in making it worse by arming all sides.

Now in the partition of India and Pakistan, a British judge came down and he drew the line on a map.  He had some statistics to do so, but he drew the line on the map without ever going out to the countryside and seeing where the line went, which is absolutely astounding.  It resembles the British drawing a line on the map when they created Iraq.  So we get the same British method of doing things.

So the lesson for Iraq is to let the Iraqis draw the line.  And the line has to be drawn, I think, to give the Sunnis actual oil wells, rather than just an oil sharing agreement, because they won’t believe that that will be honored in the long term, that the oil revenues will eventually be cut off because everyone is very suspicious in Iraq.

Now the actual migration of population—and there would have to be some in Iraq—certainly not the massive migrations, 12 to 15 million people in India and Pakistan had to change places during that partition.  But you’re probably talking a few million people in Iraq, which makes, unfortunately, for the ethnic cleansing, but it does make partitioning easier.  But there is still some intermingling. 

And if you saw these conflicting maps within a couple days in the New York Times, we see Baghdad and we see how partitioned it is.  And then Wednesday they ran a thing saying, well, but some of these Shiites are moving back from the Sunni area in the west to the Shiite areas because the neighborhoods are safer and the Sunni areas are more violent.

It’s probably pretty hard to get an accurate map right now.  So what you’re going to have to deal with are intermingled populations.  Some people are going to have to move. 

Now, coerced or forced movements of large numbers of people, or even small numbers of people, is a human-rights violation.  So what you need to do is say the line is here.  You can stay there if you want.  If you feel more comfortable, small groups of minorities have existed very safely in other countries.  With large groups, there is often war.  You could also create monetary incentives for the people to move.  There’re all sorts of things that you can do. 

So you will need population migration.  And this can cause some violence.  During the Indo-Pakistani partition, stupidly no one guarded refugee trains passing through Sikh areas, so the Sikhs were very well-armed and they were in a very bad mood at that time because they were not getting their independent area or they were facing being a minority status, a substantial minority status in Muslim areas.

So we need to pay attention to how these populations are moved, and make sure that we don’t violate human rights, and make sure that people get to where they need to go safely.  But I think we’re deluding ourselves that there are not going to be population migrations.  There already have been.  And this whole idea of a unified democratic Iraq is a myth. 

And I believe that the reason that the violence has dropped, even before the U.S. surge started, was the fact that the ethnic cleansing that was going to be done had waned for a bit because the populations had become somewhat separated.  Or if they didn’t go to ethnically homogeneous areas, they certainly went to safer neighborhoods. 

If that’s true, it would show that separating populations does reduce violence.  And I’m not the only person that thinks this.  Other people have mentioned this same fact.  Because if you look at the data, the violence started dropping even before the surge.

Now the violence is not going to drop to 2004 or 2005 levels, but it probably will stabilize probably a bit higher than those levels. 

Also I think we can learn from one important recent de facto partition, and that was the partition of Bosnia after the Dayton Accords.  Bosnia is now a loose confederation of the Republic of Serbska and a Muslim-Croat federation.  And over the top of these two areas you have a consociational national government. 

Now what does consociational mean?  This means that all groups have veto power over national decisions, but most of the power is in the decentralized entities—the Croats, the Muslims, and the Serbs. 

Now this has given Bosnia some semblance of stability after the ethnic war.  It’s not perfect.  But the lesson for Iraq is that given the history in Iraq of a dictator of one of the groups, using the central government power to oppress the other groups, the central government in Iraq would have to be even weaker.  One of the reasons that they’re fighting is that they are afraid if the other group gets control of the central government, it will be used to oppress. 

Now, I think a government in Iraq—I can’t say.  The Iraqis have to do this themselves or it’s not going to work, because it’s going to be perceived as being done at gunpoint, and those things almost never work.  But I think the government could do a few basic things.  It could maintain a free trade area within Iraq.  It could negotiate trade agreements with other countries.  And it could maintain diplomatic presence overseas.

I think security has to be provided at a local level, and it already is.  To a large extent, Iraq has been partitioned somewhat right now.  We have local militias providing security.  So the reality on the ground is probably moving toward partition, whether anybody likes to acknowledge it or not.

Also, the courts and other government services are provided by regional governments.  I think the courts have to be in the local government because then you’ll have a problem with different groups thinking the courts are being used to oppress them. 

Now a loose confederation in Iraq might have an advantage over an outright partition.  This would give the Turks a fig leaf to keep them from invading Kurdistan.  But the Turks may be kept out of Kurdistan anyway because of their investments there.  They have a lot of investments.  They’re trying to get into the EU.  If they invaded, that would be nixed.

Of course, wealthier Turkish Kurds, if the country gets into the EU, would be less inclined to secede and join their poor Kurdish brothers and sisters.  And of course that would, in turn, make the Turks less nervous.  Also the U.S. is an important NATO ally and could pressure Turkey as well. 

Now, a rapid threatened U.S. withdrawal could jolt the Kurds and the Shia into giving the Sunnis oil.  David has shown why we don’t need to retain U.S. military bases in Iraq to guard oil.  And the other idea is that if the U.S. leaves, al-Qaeda will have a sanctuary.  But I think we are already seeing some of the Sunni groups trying to purge al-Qaeda, because al-Qaeda is just so violent.

Well, the only use of al-Qaeda for the Sunni groups is to fight the United States.  So if the United States withdraws, I think you will very quickly see that the Sunni groups will turn even more against al-Qaeda.  And if security is provided at the local level, you may not have a problem with al-Qaeda.  And also we have to remember that al-Qaeda in Mesopotamia is not the central organization.  This is an organization that arose because of the United States invasion in the first place.  So this group has primary local concerns, rather than a national one, in attacking the US homeland.  So I think we need to keep those things in mind. 

So I think it’s unlikely that a partitioned Iraq would lead to an al-Qaeda safe haven because presumably the security would be better if it’s provided at a local level, and the local people would have an incentive to get rid of these people, because there’s no incentive to have it around once the U.S. leaves.

Now withdrawing from Iraq, or threat of an immediate withdrawal, would really threaten to pull the only remaining pillar left out of the Kurdish-Shiite regime that we’re supporting.  And so it would motivate, I think, these two groups to negotiate with the Sunnis.  Now the Kurds have 40 percent of the oil and 20 percent of the population.  And the Shia roughly have 60 percent of the oil and 60 percent of the population. 

So the oil may not be a big problem if you can get the Kurds to gerrymander the borders so that the Sunnis get some.  But I think that might be an easier problem to solve than the intermingling of populations.  But the intermingling of populations may be solvable as well. 

And of course if the U.S. withdraws, that would eliminate the violence directed at the foreign occupier.  And remember, the U.S. occupation originally caused the sectarian violence, because the Sunni groups were trying to start a civil war to give the U.S. a problem, because the Sunnis wanted the U.S. out.  So it’s not the total cause, but it’s one of the contributors to the sectarian violence as well. 

And, of course, the partition would lessen the sectarian violence, as I mentioned before.  It would also lessen ideological violence.  Each of the regions could have its own government, or form of government.  You might have the Kurdish region have democracy, the Sunnis have a secular dictator, and the Shia have Islamic law. 

Now Islamic law, in the United States, we don’t really like that concept. But we may have to deal with it.  And it’s better that it’s not all of Iraq. 

Now the other rap on this is, will Iran get more influence?  Well, if we didn’t want Iran to have more influence, we should have thought about that before we invaded the country. 

It’s very interesting that Iran and the U.S. are mortal enemies, and yet we’re supporting the same government in Iraq.  So it’s quite odd.  And prior to us arming these Sunni groups, the United States was fighting against the people that our allies, the Sunnis in Saudi Arabia, Jordan, etc., support.  So it’s kind of a topsy-turvy situation. 

But I think Iran would only get influence over one-third of Iraq, rather than influence over a government that controls, at least nominally, the whole country, as it does now.  So you actually would contain Iranian influence.

I think I’ll stop there, and I think we can take some questions.  I’ll moderate the questions.  And if you would, state your name and your affiliation before you answer the question.  And please keep the question short and don’t make speeches, so we can have a large number of questions.

Audience Member

I have two questions for Leon Hadar. What do you make of the recent Israeli incursion over Syrian airspace? And do you think that by engaging Syria, one inducement would be to cede Lebanon to Syrian control?

Leon T. Hadar

In the Middle East specifically and in the world in general, things are not always so black and white. As a matter of fact, I think if you look at the relationship between Israel and Syria– normal relationship between two states in the Middle East that sometimes have common interests and sometimes have conflict.  And the same people I think who in the Israeli government at this stage again—specifically what you asked me.  I read the same newspapers that you did and clearly there was an incursion there that had to do perhaps with supposedly some supply from North Korea of nuclear weapons or weapon of mass destruction or whatever. 

But the fact of the matter is that some of the people in the Israeli government who supported that incursion also would like to negotiate with Syria.  And I think one of the arguments there is some of them are saying that we have to negotiate from a position of power, since it seems like after the recent Lebanon war with Hezbollah, Israel seemed to have lost its deterrence power, and as a result, this is almost like similar to what Sadat said after the 1973 war, “We have to regain our confidence and then we can negotiate with Israel.”  And I think some of the arguments that you hear in Israel are that this was great because now we can regain our confidence.  We regain our deterrence power.  Now we can negotiate with Syria.

But it seems to me that overall since things are so fuzzy and so fluid that the bad guys in this narrative, which I include the neoconservative and some of their allies in Israel, would like to use this development and similar development in order to put pressure on Syria and on North Korea.  You heard John Bolton saying now we have to end the negotiation with North Korea, and we have to punish Syria and so on. 

But it is a dangerous development and I think we could have avoided that, as I suggest in my paper.  There were many opportunities since 9/11 for the United States to open a dialogue with Syria.

Since 9/11, there have been several opportunities in which Assad has clearly sent feelers to Israel that he’s interested in negotiation.  There were secret talks between unofficial members of the Israeli foreign policy establishment as with other officials.  And clearly there are conditions there for negotiation between Israel and Syria. 

And as I said earlier, it’s the Bush administration that has imposed a veto.  Clearly they don’t want Israel to negotiate with Syria.  It has to do with the fact that they have demonized Syria as part of this Axis of Evil, and it’s an ally of Iran.  There is also the Lebanese issue that they seem to be obsessed with, with the issue of Hariri, that maybe the Syrians were involved in his assassination.

Now as I suggest in my paper, I don’t have any sympathy towards the Baath regime and Assad himself.  I think they are a ruthless regime.  I would like to see changes taking place there.  I think the Syrians deserve clearly a better leadership than the Baathists.  But at the same time, that’s the reality.  We don’t have the power to do a regime change in Damascus.  Israel is not interested in going to full-blown war with Syria.  So we need to reach some kind of an agreement.  And I think there is a possibility.  And as I said, the U.S. has imposed a veto.   And it created this condition in which there’s this vicious circle that lead to this incursion.

And then, of course, (inaudible) say, well, you see, we told you that the Syrians, we can’t trust them, and here they are importing weapons of mass destruction or doing things that go against Israeli and American interests.  The point I’m trying to make is just the other side of the arm is that we needed to talk with them and co-opt them early on.  And what was the other thing you asked?

Audience Member

Do you think that one inducement in engaging Syria would be possible to concede Lebanon to Syrian control?

Leon T. Hadar

Yeah, well, Lebanon is a very complex issue.  I think we have to take it as a given that Syria regards Lebanon as its sphere of influence because of the geography  –  it was part of Syria at one time  –  and there are a lot of economic and strategic interests. 

That’s very different in terms of analyzing it as Syria having the right to control Lebanon.  I didn’t have any problem and I think it was a positive development that the international community put pressure on Syria to withdraw from that country.  I think it helped create a sense of Lebanese nationalism.  I didn’t romanticize it, as some people in this country did, with all this civil revolution and all of that.  I think that it was overall a positive development.  And at the same time I think, in the same way that Israel has strategic interest in the West Bank, for example, Syria’s interest in Lebanon will have to be taken into consideration in any final agreement. 

Audience Member

Hi.  The problem I have with the analysis that’s just put forward now: we talk about America and American foreign interests as though it’s all one thing, but we fail to separate the different interests within the American culture, i.e., the oil companies.  In other words, we may be fighting for oil in the Middle East, but it may not be for the citizenry of America.  It may be so the oil companies, so number 14 can move to number eight.  

So that’s the problem.  I don’t think we’re getting sufficient analysis.  The other thing is the lines.  Sure the lines won’t be bad because some people won’t have the money to get on the line to get the gas when you get rationing.  So I think we also have to think about the distribution of access within our culture if the prices go extremely high.

David R. Henderson

Let me address both points.  Your first point, I absolutely agree.  And that point is in my paper.  I saw my watch.  I wanted to keep to my contract and so I cut it short.  But the point is, I do handle thet possibility that when you talk about war for oil, you have to say oil for whom.  There can be a case made—I disagree with the case—but there can be a case made that there would be oil companies, say, in the United States or other countries, that would want the U.S. to bear the cost of their getting preferential access to oil.  I think I actually say it very briefly, but it was very brief.  My point is, that’s not a good case.  Because remember my topic.  It was, do we need to go to war for oil?  And if you think that’s a good case, I don’t think it is.  In other words, I don’t think we need to go to war to benefit some oil companies. 

Having said that, I think you need to extend your analysis further and think not just oil companies and oil consumers and separate them, but go then within the oil companies: oil companies that want to get oil cheap have one interest.  So, for example, refiners want to get cheap oil.  Oil companies that produce a lot of oil domestically, or outside the Middle East, have another interest.  They’d ideally like expensive oil.  I mean, when you’re selling something, you want the price of what you sell to be high.  When you’re buying something, you want the price of what you want to buy to be low.  So within the oil sector, there are going to be differences in the firms’ interests.

Now your second point about consumers, that’s true.  But I did a calculation during the 1979-80 Carter price controls.  Nixon imposed the price controls, adjusted them in all kinds of complicated ways.  Ford adjusted them in more complicated ways.  Carter’s people adjusted them in more complicated ways.  And so when the next price increase of oil in the world market hit in ’79, we then went to shortage because the price wasn’t allowed to adjust all the way to the market price.  We had lineups.  And I did a calculation at the time—I remember at the time the price of gasoline was about 80 cents a gallon.  And economists had estimated that if you’d had a free-market price, if the price had been allowed to go to the world market and gasoline price controls had been eliminated, it would have hit $1.

And what I calculated is if you look at the average amount of time spent in line, and the average wage, as a measure of people’s value of time, we were spending $1.20 to get gasoline.  We were spending 80 cents in money and 40 cents in time, and that’s what economists call a dead weight loss, that 40 cents.  It’s a cost to some that’s a gain to no one.  It’s like dumping those resources in the ocean.  It’s like taking that coffee there and just spreading it all over the room.  It’s like kicking over that lectern.  It’s just all this incredible destruction of value that happens as a result of price controls and the consequent lineups. 

And so everyone was hurt by that.  Now you could make an argument that poor people had a very low value of time, so they had a slight advantage in the lining up, and you might make that argument.  On the other hand, poor people typically had less flexibility of time with the hours they worked.  So that it isn’t even clear poor people gained from price controls.

Leon T. Hadar

Can I add something?  I think it’s very important that we talk about oil, and Tom Friedman makes a lot of arguments that we need to impose taxes on oil and gas because, for example, the Japanese and the French pay a lot of tax and the gas is more expensive there.  The fact of matter is, I suggested an exercise.  When you pay today, when you go to the pump and pay three dollars. Calculate into that the amount of money and resources that the United States has been spending.  And I’m not going to 1945.  Let’s just say from 1991, in terms of maintaining its hegemony in the Middle East and its control of the oil resources.  Take that amount of money and add that and factor that into the price.  It’s actually much more expensive than that. 

So it’s not really cheap, as some people argue.  It’s very expensive.

Audience Member

Thanks.  I have a question for each of you.  Mr. Henderson, all these calculations of oil probably are not known to most people who get their news in the sound bites of the evening news.

David R. Henderson

Right.

Audience Member

But certainly many, not all may be, but many policymakers do know it.  So Alan Greenspan or Baker, those people do know.  So if they argue that the war is for oil, this is a screen, and I’m asking a screen for what?

David R. Henderson

(sighs)  I don’t know.  I bet you Alan Greenspan knows it.  I am not positive James Baker knew it.  I used to work in the Reagan White House, and I kept being surprised until I was no longer surprised.  And if you keep getting surprised, you’re an idiot.  Right?  At some point, you should adjust your expectations. 

So I finally adjusted my expectations and figured out that there are a whole lot of things very high, powerful people don’t know, that they’re winging it day to day, and they got these gut feels, and they got these views of the world. 

And I don’t know about you, but the older one gets, the more rigid one gets, and so it’s not like we got all these 60-year-old really curious people around.

And so I’m not positive James Baker did know it.  And I’ll tell you, I’m always loathe to immediately go from “they must know what I know” to “well, it’s a conspiracy or there’s some ulterior motive, or whatever.” 

I’m willing to look at that.  I really am.  And actually let me look at it for a minute. James Baker.  I gave a talk at National Press Club in ’93.  I go in there and there’s this huge medallion, this huge thing dedicating this new building to James Baker.  Now that’s good press relations.

When the oil war got going, in 1991 or just the months before, when he was negotiating—I think, really, negotiating in bad faith, frankly, with Saddam Hussein.  And we can talk about that.  The Russian deal that was off the table and all that kind of stuff.  He got just a free ride from the press.  He owned, I think, 90,000 shares in Exxon—it made it to page six of the Wall Street Journal.  I mean, so there could be these energy interests. 

And so I’m not saying there aren’t.  I’m just saying I don’t know enough about them.  And I’m more concerned about the bigger issue.  Because the vast majority of people who favor war for oil—and I’m not saying the majority do—but of the people who do, the vast majority think our oil supplies are at risk, worry about those things, and I’m trying to talk to them.

And I just think so many discussions, especially in this town, get messed up because everyone’s accusing everyone else of all these motives.  I’m an economist.  I don’t give a damn about people’s motives.  I want to know, you’re advocating this policy, what are the results of the policy?  And that’s what I focused on.

Audience Member

My question is for Mr. Hadar.  The suggestions you made are not very common here.  You hardly hear them in the United States.  Are you to argue that maybe some neo-cons will consider them even anti-Israeli?  And I wonder what is the position in Israel?  How many people would agree with you in Israel?

Leon T. Hadar

I’m very interested in what Professor Henderson has been saying, and I cover that in my book.  I just want to add one point.  And again, it’s not a conspiracy theory, but you have been reading a lot recently about Putin and his associate, and there’s all this talk about those oil companies.  Look at the board of director and members of the Russian establishment and the formal ex-KGB agent and so on. 

The fact of the matter is, I mean it’s not the same, I don’t want a moral equivalency here, but we have a President who was a former—was an ex-CIA director.  Coincidentally under his government we went to war in the Persian Gulf.  If you look at most of the oil companies, or the board of directors, there are a lot of fairly close relationship between the government, and the oil companies, and so on. 

So we should discuss that in the same way.  You can take the same articles that appeared recently about Putin and the Russian oil companies, just change the names into American politicians and it will sound the same.  And what you said is, look, since the end of the Cold War, beginning with the Oslo process, I think there was always a conflict in Israel.  I call it between Jerusalem and Tel Aviv.  Between the forces in Israel who are more nationalist, religious—who are very much interested to perpetuate this never-ending war in the Middle East between Israelis and Muslims—and the entire world.  And the argument is always the world is against us and so on and so forth.

And between Tel Aviv, this is to say the modernizing communities in Israel that are not necessarily leftist.  They are not leftist at all.  It’s actually the business community, the people who are into all this issue of the global economy, the Internet and so on, who would like to see Israel coming to peace with its neighbors and so on. 

Now the U.S. policy tends to create incentives and disincentives for forces in Israel.  I just gave you an example of Syria.  There was an opportunity to open negotiation with Syria.  People in the military—again, it’s not left-wing, it’s not peaceniks and so on.  We are talking about intelligence.  People in the intelligence community, in the military, and the business community, wanted to open and at least test the views of Assad.  The Bush administration vetoed that, imposed a veto and wanted to prevent that. 

So this is just an example.  It’s an ongoing process.  And as I said, the U.S. can play a role of providing incentive and disincentive.  During the Clinton administration, I think they provided incentives, basically, to make changes.  This administration is very much opposed to that.

Audience Member

I have two questions.  I’m not very clear if what you are advocating is a partition or a decentralization, like a kind of big confederation. 

And the other is my main question. Some people are afraid that a partition is going to send a signal to other places where they may not want a partition, like Turkey, the Kurds in Turkey.  They say, well, they also want to have a partition.  This is going to be a signal.  It’s going to embolden them.  Some people say it may even go so far away as Belgium.

Ivan Eland

Well –

Leon T. Hadar

You can add Belgium to the list of countries.

Audience Member

How about Texas?

Ivan Eland

First of all, a partition is the extreme decentralization.  I would say either a loose confederation or a partition.  I don’t necessarily want to dictate what happens to the Iraqis. I’m merely suggesting that they’re already going down this road, the facts on the ground, etc.  So I think we’re going to have some sort of a decentralized Iraq. 

As I mentioned in my talk, I think loose confederation—which is not quite a partition—might at least keep the veneer so that Turkey would feel that it didn’t have to do anything about it.  So that’s the advantage of a confederation.

But my central government in—if I had my druthers, in Iraq would be very weak anyway.  So in Bosnia you have an ostensible confederation, but it’s sort of a partition because the central government is consociational.  And so the groups have veto power over that.  So what was your second question?

Audience Member

The signal question.

Ivan Eland

Well, we’ve got to get out of Iraq first.  We’re in deep.  And Kosovo, they could have said the same thing about Kosovo.  Kosovo encourages this sort of thing.  But, of course, if the United States quits intervening in places like this, and to get this result, that will in part discourage other places from doing. 

But in Kosovo, we leaped into the fray and it caused the current situation of them wanting independence.  And they certainly internationalized the conflict, the KLA did.  And so the same thing is happening in Iraq. 

So if we want to prevent that from happening, all we have to do is quit intervening.  You say, you can secede from your country if you want, but we’re not going to help you out.  We’re staying neutral.

One last question.

Audience Member

One point you all don’t discuss is all the interest in America, in Washington in particular, the benefit from wars, and prosper from this.  And I doubt the Independent Institute gets much from the military industrial complex.  But a number conservative foundations do. 

And to ask Mr. Henderson, in particular, the Heritage Foundation put out a study that attacking Iran would have some limited consequences, the Straits of Hormuz would be shut a week and the U.S. Navy would open it.  But afterwards we’d drill for oil in Alaska and off the coast of Florida and everything would be okay afterwards.

I mean, these are the kind of studies, and I put it to you, how do you see that in the Straits of Hormuz in particular?  But I just want to add, the benefit that many people in Washington get from going to war, and the profits—look at the things like Blackwater.  Hundreds of millions of dollars are spread around.

David R. Henderson

Well, no, I think that’s right.  And if I look at how the war got going, I’d still want to see someone give a fair amount of evidence that the main players in pushing for that were Blackwater, or Halliburton or whatever.  And I know you might say, well, Cheney headed Halliburton.  Yeah, I’ve got a little section on that in my article.  Cheney sold his shares before he became VP, and so he doesn’t gain from Halliburton gaining.  Halliburton clearly did gain.  Now you might say, oh wait a minute, he kept his stock options, and those went way up.  Yes he did.  But you could even go online and see the statement that he and Lynne Cheney signed turning over all of their stock options to a charity.  In other words, that is a lock.  He can’t gain a cent out of that. 

And again, I’m not defending Cheney. I think Bush and Cheney and Rumsfeld were central planners.  And they were incredibly bad at it.  And they really thought they could have this democratic Middle East.  And I take them at their word.  I think they were sincere. 

Now it is incentives that you’re getting at that cause them not to question that.  Because it’s not their loss, you know?  If they screw up, oh, what’s a trillion dollars?  What’s 3,000 lives?  What’s 100,000 lives over there?  They bear their pro rata share of the cost.  And that doesn’t include lives.  I did a calculation when I did the thing, given what I think Bush’s future income is, that the present value of higher taxes he’ll pay for the Iraq war is on the order of $100,000.

But if it works, he gets to be this great person in history.  And I think those are really the animating motives.

Ivan Eland

Also I think when we’re discussing war and oil, the public choice school of economics is very helpful in this, because it says that interest groups that are very focused, all the benefits are concentrated for them and all the costs are dispersed.  It happens in healthcare, it happens in war, it happens for oil companies.  It happens in every form of public policy.  So it probably happens in war and oil. 

I’m a little bit more skeptical, I think, than David is, that an administration of oilmen wouldn’t know deep down that you didn’t really need to defend oil.  Especially free market people.  And I was very shocked at Greenspan, because I just think he knows better.  But you can’t prove that.  It’s very difficult to prove.

I mean, for farm subsidies or something, maybe it’s easier to prove that groups have an effect on the farm bill or something, but foreign policy is often made in secret and that sort of thing.  So you only get bits and pieces of how it works. 

But I think you’re absolutely right, because some people do profit from more, not only monetarily but bureaucratically and that sort of thing.  And then the same case, the same with the oil issue—it’s an indirect subsidy to oil companies, us being in the Middle East.  And it’s certainly coming out of the taxpayer dollars.  And I think Leon pointed out that the price at the pump is much higher for oil than what you pay at the pump.  Because you’re paying a lot for the DOD budget and that sort of thing.

But if you really want to be a conspiracy theorist, say this administration of oilmen know that you don’t really need to do this for free market.  Well, suppose they’re doing it not to defend our oil, but to keep our thumb on the oil of Europe, China, India, future great powers.  This is also covering the political science literature of realism.  That’s what great powers do.  They try to get advantage over whether they’re a democracy or an autocracy.  They try to get advantage over other great powers.  And what great powers.  

And China’s very scared that we have this thumb—our US Navy, which no one even comes close to being as strong as the US Navy—we have this thumb on their oil supply.

We’re going to take one more question.  Has anybody else got a question?  Right here.  This is the last question.

Audience Member

To Ivan, and one quick one for Leon.  How do you factor in your calculation on soft partition or confederation of Iraq with the fact that the Sunni Arabs, who are at best 20 or 25 percent of the population, have a fervent, deeply-held belief that they’re actually a majority of the population and that they generally found that the results of the last election were dishonorable because they only got about 20 percent of the seats in the Parliament?

And to Leon, talking about changing paradigms.  In 1979, after the Iranian revolution who would have ever have thought that 25 years later the most pro-American population in the Middle East in the Muslim world would be Iran? Why can’t we just let the Iraqis go on, set up a pro-Iranian state, and let things go the way they usually do in that part of the world, and 20 years from now, you’ll have a very anti-Iranian state, Iraq?

Ivan Eland

Well, the first question, I mean, the Sunnis have this sense of entitlement since they ran the place.  But I think, you know, the possibility of a cataclysmic civil war, they’re also going to be the ones that—the Kurdish militias are very well trained.  The Shiites have the numbers and also U.S. training.  If anything, the Sunnis are at a disadvantage, I think, in all that. 

And I think people have their expectations, and sometimes their expectations get very quickly changed by events.  And I think the Sunnis would be at a disadvantage in any big civil war.  And I think that’s a factor that they would have to consider.

I mean, none of this is going to be easy, and it’s not a foolproof thing without risk, but again, I say what’s the alternative?  I don’t think the unified Iraq is going to last.  I don’t think we have a unified Iraq now.

Audience Member

That last answer from Leon.

Leon T. Hadar

I have two things.  I just want to add to what Ivan said.  When we discuss all this issue of partition, like in The Graduate there was the guy who says think plastic.  Think about Cypress.  Cypress—I don’t know if many of you know that but it’s been divided for the last 40 years.  Forty years.  There hasn’t been really resolution of that conflict, and Turkey is controlling to occupy the Muslim part of it.  And I think the same thing is going to happen in Kosovo because of the Russian opposition. 

What I’m trying to say is that I think in the long run—and it’s not what I want—I would like, would love to see a loose confederation.  But I think in the long run what you’re going to have, or at least in the mid term in Iraq, is some kind of an informal partition.

People will continue to say we are opposed to it, we don’t want it, and so on.  But they’ll probably, because of the balance of power, in the internationally and in the region, nothing is going to happen.  Turkey would never allow the Kurds to have an independent state, so they’ll have this autonomy, and so on and so forth. 

Now as far as what you raised, actually, we don’t have to go far, is we have to go to the Vietnam War.  When the United States left Vietnam, China ended up going to war against Vietnam.  And as a result, inflicting a major defeat on them. 

Moreover, we ended up supporting, actually, the bad guys in Cambodia, and the ensuing civil war that took place.  And then, if we get out of Iraq, I think eventually—it sounds very cynical and it’s Edward Lettwak, you mentioned him, who said that once is, you know, give war a chance, as they say.  At some point, people are going to fight, like Americans did in the Civil War, and some—it’s going to determine the outcome.  Someone is going to win.  Someone is going to lose.  And then eventually you are going to have a stable balance of power, because it will reflect the reality out there.  The minute you interject an outside power, you prevent that from happening. 

So, as far as I’m concerned, again, I think if we get out of Iraq it’s just going to get worse for awhile.  Eventually things are going to work out very much as they did in Southeast Asia after—and now we have in Southeast Asia a Vietnam that is crawling on four to ask for US investment and support.  No one—the U.S. ended up winning the Cold War 10 years or so after the end of the Vietnam War.  And if you go to Vietnam today, no one is calling—when they see an American, no one is shouting, you are wimps.  We defeated you, and so on.  They are saying give us a green card or give us some money.  That’s what they want.  And the end result of all of this is that we won the war then.  And at the end of the day, this is going to be a minor issue in the history of the US, internationally and domestically.

Ivan Eland

But I have to add, if we don’t get out it, could be a major issue if it continues to gin up the jihadism here at home.  I think the biggest reason to get out of Iraq is our own liberty at home and our own vulnerability to American terrorism.  But I think you’re absolutely right, the downside of getting out of Iraq, it’s going to be another Vietnam experience.  Well we’ve gone a little overtime so thanks for coming and please join us for lunch.

Audience Members

(applause)

END OF CONFERENCE



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